Forest Industry , a Crisis In Waiting ?

By 250 News

Editor’s note: In this story, Opinion250 has not identified the people who have provided us with an insight into where they feel the forest industry is heading. We did that deliberately to allow them to speak frankly about what they see as a serious problem in the base resource of this region.

"We are doing a lot of soul searching in our company. Looking at our costs, trying to cut our losses and going into survival mode."  That’s the way one executive of a multi million dollar forest products company  describes  the current situation facing  the industry. 

Companies will soon be analyzing their third quarter results,  and  for many,   the numbers will not look  good.  Two   companies  (Canfor and Pope&Talbot) have already announced  there will be downtime at their mills in the  last three months of the year to  reduce inventory and to save  dollars.

One executive  says  each company is seeking a different solution and most of them are not very pretty. He says some companies are now saying we are tired of it, and we would like to throw in the towel, while others see this move as an opportunity.

Most  mill operators  don’t want to speculate on the activities of their competitors "I can’t be too interested in other people," one mill owner told us "I have to look at myself. If there ever has been a worse time in the forest industry, neither I nor the people around me have ever seen it."

While one mill owner   said Canfor is  just one of the players,  he wonders how long that company can  carry on the way it has "Year to date they have lost about $100 million dollars" he said, " Now I know that the third quarter at CANFOR won’t be as bad, but trust me, the $600 million they received in returned duties won’t last long. "

Earlier this  year,  workers and regional managers worked to come up with a  proposal to save the Mackenzie mill from  closure.   At the time, Canfor said that facility was  losing too much money  month to month.   The end result was a  lost shift,  about  one quarter of the mill’s workforce, let go. Still, it was a  better scenario than the closure which would have had  a major negative impact on the community of Mackenzie.

Make no mistake, mill owners are concerned,  "We are facing a crisis on a grand scale" says one owner, "18 months of tough sledding and then a severely reduced harvest . I always wonder who has been pulling the wool over people’s eyes because everyone in  P.G. seems to think that our economy is so diversified now that we don’t have to worry. "

What about the sale of wood products across the border?  A spokesman for an  American firm says  don’t hold your breath. About one half of all of the forest products Canadian  companies  ship south of the border goes to places like Home Depot , Lowe’s, and other major building supply houses. "About half of their products are used up by the renovation industry, ’the do it yourself market’, but that market has dried up"he says. "Perhaps as a result of people being scared by the fact that the value of their home has dropped by 40% over the past few months. Because of this mind set ,we are seeing less and less of the do- it -yourself business in stores. There is a fear here south of the border that the U.S. could go into a fill blown recession and if you don’t think its worry you need to look no further than the value of your dollar to see that investors are afraid of the US market."

North of the 49th,  mill owners are  taking stock of their operating costs, "It costs our company between $300 and $400 thousand dollars a month to stay open, ‘those are the bare costs that you have to pay no matter what" says one  mill executive,  “So if we run our mill and lose say $300 or $400 thousand, it  is about a break even point. When you start losing more money than it costs to remain open, you start looking at a long time shut down, maybe three or four months, to try and reduce inventory and costs.

What about CANFOR?   Canfor  is just one player, we were told, and each and every other mill operator noted all the players  are facing challenges; Pope & Talbot is in real trouble, Tolko is said to have challenges, West Fraser is viewed as being  more  competitive, Winton Global has already done some trimming both in the mill and in the  office.  "I think Canfor will drop $157 million this year" said one owner, while another speculated  Abitibi  could be heading for a major cash loss.  "No one wants to be the first to shut down , they are hoping that someone else goes first and they then can pick up their market share and stick around.."

The  reduced demand  for  lumber  has  been a blessing in disquise for  the coastal mills that have been on strike "Those mills have been on strike there since mid July and you don’t see any mill operator there in any rush to get those mills up and running."   Another owner said, "I don’t want you to think that the mills in eastern Canada will be the first to go”, I was there about five years ago and they have some pretty modern mills."

Most agree the exchange rate has been the biggest item, followed by the 15% export tax, a US market that is in the tank, and a future in which there is a dwindling supply of fiber.

Each and every one of these owners agreed on two things

1. it is a major blow to the forest industry
2. it will last at least 18months into the future.

Is there anyone making money in the forest industry?  Everyone agrees the Pulp industry is moving along full tilt. Prices for pulp they say have doubled in the last year and chips have been the saving grace for the industry.

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